McCormick's third quarter delivered 2% total organic sales growth, its fifth consecutive quarter of volume-led growth led by the Consumer segment, with adjusted EPS up 2% to $0.85. Adjusted gross margin fell 120 basis points below expectations on higher commodity costs, tariffs, and capacity-support costs, and the company raised its tariff and inflation assumptions for the year. Management maintained its full-year organic sales guidance but lowered adjusted operating income growth to 3% to 5%, citing incremental tariff and commodity costs, with targeted tariff pricing beginning in the fourth quarter.
Good morning. This is Faten Freiha, VP of Investor Relations. Thank you for joining today's Third-Quarter Earnings Call. To accompany this call, we've posted a set of slides on our IR website, ir.mccormick.com. With me this morning are Brendan Foley, Chairman, President, and CEO, and Marcos Gabriel, Executive Vice President and CFO. During this call, we will refer to certain non-GAAP financial measures. The nature of those non-GAAP financial measures and the related reconciliations to the GAAP results are included in this morning's press release and slides. In our comments, certain percentages are rounded. Please refer to our presentation for complete information. Today's presentation contains projections and other forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statement, whether because of new information, future events, or other factors.
Please refer to our forward-looking statement on slide two for more information. I'll now turn the discussion over to Brendan.
Good morning, everyone, and thank you for joining us. Third quarter top-line performance was strong and marked our fifth consecutive quarter of volume-led growth, reflecting our differentiation and the benefit of continued investments in our brands, expanded distribution, and innovation. Due to the dynamic global trade environment, our gross margin was further pressured by rising costs. However, our effective execution on efficiency initiatives drove continued operating profit growth. We are executing with discipline on the actions within our control, while adapting quickly to the dynamics in the external environment and, at the same time, positioning McCormick for sustained long-term growth. This morning, I will begin my remarks with an overview of our third-quarter results, focusing mostly on top-line drivers. Next, I will review how McCormick is positioned relative to an evolving consumer landscape for the remainder of this year and into 2026.
I will highlight some areas of success and the areas we continue to work on, as well as our growth plans. Marcos will then go into more depth and review our 2025 outlook, including an update on our tariff exposure and mitigation plans. Finally, before your questions, I will have some closing comments. Turning now to our results on slide four. In the third quarter, total organic sales increased by 2%, driven by volume growth, primarily in the Consumer segment, in line with our expectations. In global Consumer, organic sales growth was volume-led and demonstrated continued momentum across key markets and core categories in the Americas and EMEA. In Asia-Pacific, our China retail business continued to deliver growth. However, our food service business, which is reported within China Consumer, faced softer demand due to slower consumption in certain channels, such as high-end dining.
Despite this unforeseen headwind, we remain confident in a gradual full-year recovery in China Consumer for 2025. In global Flavor Solutions, despite soft industry trends, we grew underlying volumes as we lapped favorable growth related to the timing of customer activities in the prior year in the Americas. Softness in large CPG and branded food service customers' volumes was also more than offset by QSR growth in both Americas and Asia-Pacific. We are increasingly benefiting from continued momentum in health and wellness categories, driven by both high-growth innovators and private label customers. Lastly, in EMEA, QSR trends began to stabilize, marking an improvement relative to recent periods. Let me now share our current view on the state of the Consumer and considerations for 2026. The environment remains challenging across our key markets, with market dynamics pointing to continued pressure into 2026.
Consumers, especially low to middle-income households, are adapting to the economic environment by adjusting how they shop, making more frequent trips with fewer items per basket, choosing larger pack sizes to maximize value, and stretching meals across a number of occasions. In addition, they continue to cook at home more often and shop the perimeter for fresh foods to help lower overall meal costs. These behaviors reinforce the demand for flavor, particularly in our core categories, with herbs and spices continuing to lead center-of-store unit consumption. Health and wellness trends continue to gain momentum. Consumers are preparing healthier, more affordable meals at home while exploring new flavors and culinary creativity. High protein and healthy claims are driving purchase trends across retail and food service, alongside growth in functional foods that deliver great taste with added benefits such as protein, fiber, hydration, energy, and better sleep.
Convenience, paired with flavor exploration, remains an area where consumers are willing to pay more, and e-commerce growth continues to accelerate across our core categories. These trends are fundamental, long-lasting, and support the continued demand for flavor, benefiting both the Consumer and Flavor Solutions segments. With our broad global reach, strong local brands, ongoing innovation, and strategic pricing, we're well positioned to meet the needs of consumers and continue to deliver value through flavor. As we address immediate priorities in today's rising cost environment, it's important to reiterate that our strategy remains consistent. We remain committed to delivering volume growth and investing in our brands, technology, and digital transformation as we continue to reinforce the structural advantages that will drive our future success. We are balancing volume and profitability, and this year, we expect to offset rising commodity costs and tariffs as much as we can.
Our global manufacturing location strategy, resilient supply chain, global sourcing capabilities, and collaborative efforts across the organization continue to be competitive advantages, enabling us to mitigate the impact of tariff and tariff-related costs and maintain business momentum. We are absorbing some incremental costs this year, which has a near-term impact on our profitability. This approach enables us to maintain our volume momentum and sustain investment in our growth initiatives while still delivering operating profit growth for the year. As a result, we reaffirmed our volume-led sales growth and expect to deliver at least the midpoint of the range. In addition, we revised our profitability outlook to the low end of the range provided in January. This reflects the updated net impact of rising commodity costs and tariffs since our second-quarter call.
As we look ahead to 2026 and beyond, we will remain consumer-centric, committed to delivering value, flavor, and quality while maintaining our volumes and protecting our profitability. Let's move to slide five, and let me highlight for the quarter some of the key areas of success. Across the global Consumer segment, we continue to successfully execute on our plans. We have held steady or improved share across many core categories in key markets for the last five quarters. McCormick branded unit consumption growth continues to outpace the broader edible category in the U.S. In EMEA, unit and dollar consumption are outpacing branded and private label fast-moving Consumer goods or FMCG food. Let me provide some additional color. Starting with spices and seasonings, we drove strong volume growth across all regions. In the U.S., volume growth continued to outpace private label for the fifth consecutive quarter.
In Canada, we continue to grow overall share. In France and Poland, share gains in spices and seasonings are contributing meaningfully to EMEA's gains. This quarter, the strong performance in our grilling portfolio was supported by the rollout of our new Consumer-preferred packaging for Grill Mates, as well as increased Frank’s RedHot promotions and innovation. In mustard, we are pleased to see that our plans are continuing to drive great results. For the third quarter in a row, we drove dollar unit and volume share gains in the Americas. In EMEA, we drove unit and dollar share gains in mustard for the last two quarters. In hot sauce, we continue to achieve good results. In the U.S., we continue to drive unit share gains fueled by expanded distribution, as well as investments in differentiated brand marketing and innovation. In the U.K., we accelerated unit consumption, leading to dollar share gains.
We continue to make progress on total distribution points, or TDPs. In the Americas, we expanded TDPs across spices and seasonings, recipe mixes, hot sauce, and mustard. In the Americas and EMEA, we continue to gain distribution in high-growth channels like e-commerce. In Flavor Solutions, we continue to see strength in our technically insulated high-margin product category, flavors. In flavors in the Americas, we continue to diversify our customer base by winning new customers and gaining share, increasingly benefiting from both high-growth innovators and private label customers. In addition, we are seeing an increase in reformulation projects, particularly with larger customers. Lastly, we outperformed the industry across many end categories, including nutrition bars, alcoholic and non-alcoholic beverages, and we continue to win business across snack seasonings and better-for-you categories. QSR performance remains strong in both the Americas and Asia-Pacific, and volumes have stabilized in EMEA relative to recent trends.
In the Americas, performance was driven by innovation, customer growth, and continued share gains. In China and Southeast Asia, our customers' new products and promotions continue to drive strong volume growth. Let me now touch on some areas where we are seeing some pressure. Starting with global Consumer. In recipe mixes, we continue to demonstrate underlying strength in our base business and strong consumer loyalty. We saw growth across many product lines. However, total growth was pressured by increased competition in the U.S., particularly within the Mexican Flavor category. We expect these trends to improve as we launch new innovation, gain distribution, leverage our authentic Mexican brands like Cholula, and invest behind our brand marketing initiatives. In Asia-Pacific Consumer, as I mentioned, the food service business faced softer demand in certain channels. Looking ahead to the fourth quarter, we continue to diversify into high-growth channels and expand our distribution.
As a result, we remain confident in a gradual full-year recovery in China Consumer for 2025. Moving to Flavor Solutions, in the Americas and in EMEA, within flavors, some of our large CPG customers continue to experience softness in volumes within their own businesses. We continue to work on offsetting these trends through innovation and collaboration and by winning new customers. In branded food service, foot traffic remains soft, which continues to impact our customers' volumes. We are seeing sequential improvement in our underlying business performance, driven by non-commercial customers. This includes places of employment, hospitals, and colleges and universities. As outlined on slide six, our growth levers remain consistent to drive growth through category management, brand marketing, new products, proprietary technologies, and our differentiated customer engagement. These levers are supported and enhanced through data and analytics as we continue to accelerate our digital transformation.
The strength of our base business continues across major markets and core categories, and we have a number of initiatives in flight that will continue to support our performance for the fourth quarter. I am excited about the growth opportunities ahead. In the Consumer segment, our investments to drive volume growth remain in place, including increased brand marketing, innovation, and revenue management initiatives. They have driven strong and differentiated performance over the last six quarters. We continue to see strong consumption trends and expect continued volume growth for the fourth quarter. We expect distribution growth, accelerated innovation, and renovation across the portfolio, and brand marketing investments to drive increased purchase interest and velocity and support volume performance. Let me provide a couple of examples.
Thank you, Brendan, and good morning, everyone. Let's start on slide eight. Total organic sales grew 2% for the quarter, driven by volume and mix. This reflects total volume-led growth for the last five quarters and underscores our differentiation and ability to drive growth, even in a Consumer backdrop that remains challenging overall. Moving to our Consumer segment on slide nine, organic sales increased 3%, driven primarily by volume and mix, with minimal benefit from pricing. Consumer organic sales in the Americas grew 3%, with 3% volume growth and flat pricing. Volume growth was strong across our core categories and was driven by our investments in brand marketing, innovation, and category management. In EMEA, we grew Consumer organic sales 4%, driven by a 1% increase in volume and a 3% increase in price, related to targeted actions taken as a result of increased commodity costs.
We're pleased with the sustained volume growth in EMEA, despite price increases. Consumer organic sales in the Asia-Pacific region decreased by 1%. This decline was driven primarily by softness in the food service business in China that Brendan mentioned earlier. Turning to our Flavor Solutions segment on slide 10, third quarter organic sales were up 1%, driven by price contributions of 1% and flat volume and mix. The volumes for the quarter were impacted by unfavorable comparisons related to the timing of customers' activities in the prior year. Underlying volume was positive for the quarter. In the Americas, Flavor Solutions' organic sales increased 1%, reflecting a 2% price contribution, partially offset by a 1% decline in volume. Our results include the favorable comparison I mentioned earlier and reflect a strong performance with faster growing flavor customers and continued QSR growth, partially offset by softness in CPG customers' volumes.
The price contribution is primarily related to currency in Latin America. In EMEA, organic sales decreased by 3%, including a 2% decline from price and a 1% impact of lower volume, reflecting soft CPG customers' volumes. We're pleased to see that volumes have stabilized in EMEA relative to recent trends. In the Asia-Pacific region, Flavor Solutions' organic sales increased 6%, with volume growth of 9%, driven by QSR customer promotions and limited-time offers, partially offset by a price of 3%. Moving to slide 11, adjusted gross profit margin was down 120 basis points in the third quarter due to higher commodity costs, tariffs, and costs to support increased capacity for future growth, partially offset by savings from our Comprehensive Continuous Improvement program, or CCI. Overall, gross margins came in below our expectations, as we're seeing incremental cost pressures due to the global trade environment.
In the fourth quarter, more of our mitigation efforts will come through, leading to gross margin improvement. Selling, general, and administrative expenses, or SG&A, decreased 100 basis points relative to the third quarter of last year, driven by lower employee-related benefits expenses, as well as CCI savings, including our SG&A streamlining initiatives, partially offset by continued investments in brand marketing and technology. For the quarter, adjusted operating income increased by 2%, with minimal impact from currency. This increase was driven by improved SG&A, partially offset by gross margin and increased investments to drive growth. Our third quarter adjusted effective tax rate was 16% and comparable with the year-ago period rate of 17%. Our tax rate in both periods benefits from favorable discrete tax items.
Our income from non-consolidator operations in the third quarter decreased 6%, as the strong operational performance from our largest joint venture, McCormick in Mexico, was more than offset by the strengthening of the U.S. dollar against the Mexican peso. Turning to segment operational results on slide 12, adjusted operating income in the Consumer segment increased 4% or 3% in constant currency. The increase was driven by sales growth and improved SG&A, partially offset by increased tariffs and commodity costs. In Flavor Solutions, adjusted operating income declined by 2%, with minimal impact from currency, as we lapped a strong quarter in the prior year and faced increased tariffs and commodity costs. These headwinds were partially offset by pricing and improved SG&A. Year to date, Flavor Solutions' adjusted operating income increased by 10% or 12% in constant currency, in line with our expectations.
We continue to make progress in expanding our Flavor Solutions' operating margin and expect our total adjusted operating margin expansion for the year to be led by this segment. At the bottom line, as shown on slide 13, third quarter 2025 adjusted earnings per share was $0.85, an increase of 2% compared to the year-ago period, driven primarily by increased adjusted operating income. On slide 14, we've summarized highlights for cash flow and balance sheet. Our cash flow from operations through the third quarter of 2025 was $420 million, compared to $463 million in 2024. The decrease was driven by higher cash use due to the timing of working capital. We returned $362 million of cash to shareholders through dividends and used $138 million for capital expenditure.
The timing of capital expenditure depends on the phasing of initiatives, including projects to increase capacity and capabilities to meet growing demand, advance our digital transformation, and optimize our cost structure. Our priority remains to have a balanced use of cash. This means funding investments to drive growth, returning a significant portion of cash to shareholders through dividends, and maintaining a strong balance sheet. We remain committed to a strong investment rate rating and expect to continue to deliver strong cash flow in 2025, driven by profit and working capital initiatives. Before turning to our outlook, let me provide an update on our tariff exposure and mitigation plans on slide 15. Since our last earnings call, new and higher tariff rates have been introduced. As this situation remains fluid, it's important to call out that our views reflect tariffs as they currently stand.
As you can see on the slide, our current gross tariff costs for 2025 are now expected to be approximately $70 million, compared to the $50 million we provided on our last call. Our total gross annualized tariff exposure is now approximately $140 million, compared to $90 million we provided previously. For 2025, we continue to expect to offset most of the tariff impact, but it's worth noting that not all of our mitigation efforts are permanent, and these will need to be addressed next year. As we look ahead to 2026, we plan to offset as much of the incremental impact as we can with productivity savings across the P&L, alternative sourcing, supply chain initiatives, and, of course, leverage our revenue management capabilities, including pricing. As you know, this is a nibble-obey situation, and we'll continue to monitor how policies impact rates and, therefore, our costs.
We expect to provide more color on this when we report our fourth quarter results in January and share our outlook for 2026. It's worth noting that we have begun implementing targeted tariff pricing, and we'll be monitoring elasticities to help inform our plans for 2026. As we said, we're taking a very surgical approach to pricing and leveraging robust analytics and planning tools to ensure we maintain volume growth and continue to meet consumers' and customers' needs for both value and flavor. We stay agile with mitigation plans across all lines of the P&L to protect our profitability. In summary, we see tariffs as a discrete headwind to work through. However, we remain committed to our strategic priorities to continue to drive a healthy top line, invest in the business, and maximize our profitability. Now, let's turn to our updated 2025 financial outlook on slide 16.
We're maintaining our net sales and revising adjusted operating income and adjusted earnings per share guidance for the year to reflect our updated estimates on the impact of higher commodity costs and tariffs. Overall, in terms of currency, assumptions remain about the same. At the top line, we continue to expect organic net sales growth to range between 1% and 3% and expect to achieve at least the midpoint of our guidance range. Growth remains volume-led and primarily driven by our Consumer segment, with Flavor Solutions continuing to be flat for the year. In terms of price, we continue to expect a contribution primarily through the Flavor Solutions segment, and tariff-related pricing will mostly come through in the fourth quarter. For China, our outlook continues to assume a gradual recovery, and we expect China Consumer sales to improve slightly year-over-year.
We saw this come through in the year-to-date period, and we expect it to continue for the rest of the year. In terms of inflation, excluding the impact of tariffs, our estimate has changed for the year to low to mid-single digits compared to low single digits in our prior outlook. Our 2025 gross margin is now projected to be flat for the year compared to our prior guidance of flat to 50 basis points. This reflects elevated costs of commodities and tariffs coming in higher than we had planned. As we look ahead to the fourth quarter, we expect gross margins to improve as more of our mitigation efforts will be in place. On SG&A, we expect CCI savings, inclusive of our streamlining initiatives, to be offset by investments in technology, as well as brand marketing to drive volume growth.
We continue to invest in brand marketing in line with our guidance, and we're driving more efficiencies through the use of technology, as well as our CCI program. Adjusted operated income growth is now expected to be 3%-5% in constant currency, compared to a prior range of 4%-6%. The decrease of 1 point represents the incremental increase in tariff and commodity costs. It's worth noting that our revised range brackets the low end of our prior guidance, which was set back in January of this year, prior to the changes in the global trade environment. In addition, we want to maintain a balanced outlook that gives us the flexibility to continue to invest in the business while growing adjusted operated income.
Thank you, Marcos. Before moving to Q&A, I would like to close with our key takeaways on slide 17. We expect to continue to execute our proven strategies in alignment with consumer trends and with speed and agility. The long-term trends that fuel our attractive categories, consumer interest in healthy, flavorful cooking, flavor exploration, and trusted brands, are enduring trends. We continue to drive differentiated volume-led top-line growth and share growth gains across our core categories. Our results demonstrate that we are investing in the areas that drive the most value, and we expect to maintain this momentum. Similar to many of our peers, we are facing rising costs due to the global trade environment, and we are leveraging our competitive advantages and cost-savings initiatives to lessen the impact of these costs, maintain our volume momentum, fuel our investments, and drive profitable growth.
Importantly, we view tariffs as a discrete headwind to work through. However, we remain committed to our strategic priorities, sustaining a healthy top line, investing in the business, and maximizing profitability. Ultimately, we believe the execution of our growth plans will be a win for consumers, customers, our categories, and McCormick, which will continue to differentiate and strengthen our leadership. Finally, I want to recognize all McCormick employees for their dedication and contributions and reiterate my confidence that together we will continue to drive differentiated results and shareholder value. Now for your questions.